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The Paradoxes of China

Understanding our rival.

Nov 5, 2012, Vol. 18, No. 08 • By CHARLES WOLF JR.
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Loan agreements accompanying foreign aid projects typically stipulate that commodities produced by the natural resource projects will be exported to China, that the lending institutions establish escrow accounts into which the revenues from these exports are deposited, and from which the lending institutions withdraw interest and principal for debt servicing and for fees and other payments due to contractors.

The paradox of China’s foreign aid is that, unlike traditional aid provided by the capitalistic United States, EU, and Japan, which is philanthropic in character, the quid-pro-quo, transactional conditions attached to China’s foreign aid projects are distinctly capitalistic.

The Military Spending Paradox

To frame the military spending paradox, two points are crucial: The first relates to the special meanings that the labels “liberal” and “conservative” have in China; the second relates to the pace of military spending growth in China.

“Liberals” in the China context are those who favor economic reform with a dominant role for market-based pricing and market-based resource allocation, and who seek to reduce central planning and government control. “Conservatives,” on the other hand, favor increased reliance on state enterprise, central planning, and protectionism, and diminished reliance on markets.

During the first decade of the 21st century, China’s real GDP increased at an average annual rate of 10.2 percent, while real military spending increased at an average annual rate of 12.1 percent; both rates were the highest among all the world’s major economies, while the substantially higher rate of military spending growth was unique to China.

China’s “liberals” endorse the growth of military spending no less enthusiastically than do China’s “conservatives.” Indeed, China’s liberals view rapid increases in peacetime military spending as an essential part of economic reform, distinguishing them from the liberals of the Western world, who press for lower levels of military spending, and for lower rates of growth in peacetime military spending.

The Corruption Paradox

Members and adherents of the Communist party of China confront two sharply divergent views of corruption—defined as officialdom’s use of public authority to extract personal profit at the expense of the public good.

Mao Zedong viewed the practice permissively, if not dismissively. He analogized strict efforts at curtailing corruption to trying to “squeeze out all the toothpaste” from the tube: not likely to succeed, and not worth the effort. At moderate levels, he viewed it as a peccadillo, and perhaps a lubricant for the smooth functioning of the system. According to Mao, “among those whose labor is good, no (corrupt) label should be given,” and rehabilitation should be quick and easy.

A sharply different view is advanced by others, including some in the upper levels of the hierarchy referred to in the above discussion of the class paradox. They see the conspicuous rise in corruption as a threat to the party’s “legitimacy” and its continued monopoly on political power. Furthermore, some of those holding this view worry that as long as the state plays a major role in the economy, corruption will grow. Consequently, they favor greater reliance on the private sector and freer markets, and sharp reductions in the state’s economic power.

The paradoxes that pervade the China scene are deep, abiding, and, in some cases, counterintuitive to Western thinking. Still, when it comes to assessing the complexities of U.S.-China relations, the paradoxes should be an important part of the calculus—indeed, more important than reiterated “toughness.”

Charles Wolf Jr. holds the distinguished chair in international economics at the RAND Corporation and is a professor of policy analysis at the Pardee RAND Graduate School. He is also a senior research fellow at the Hoover Institution.

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